Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack ma
ID: 2478399 • Letter: J
Question
Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack made no further gifts until 2009, at which time he gave $1,750,000 to each of his three children and an additional $1,000,000 to State University (a charity). The annual exclusion in 2009 was $13,000. Recently Jack has been in poor health and would like you to estimate his estate tax should he die this year. Jack estimates his taxable estate (after deductions) will be worth $5.4 million at his death. (Reference the tax rate schedule in Exhibit 25-1 and the Unified Credit schedule in Exhibit 25-2to answer this problem.) (Enter your answer in dollars not in millions.)
Please provide the calculations to determine the estate tax. I would really appreciate it - I can't seem to come up with the correct answer. I have gone through several times since posting to try it again. The professor said that the needed information is all here - and that is the only help he will give. Thank you in advance.
Explanation / Answer
The solution proceeds in three steps with the calculation of gift taxes in 2008 to 2009 followed by the calculation of estate tax in 2009.
2008: Jack made his taxable gift of 1,000,000 in 2008 at which time unified cedit was 1,750,000. If jack previously had made not taxable gifts, the cumulative tax would be 354,8000, and after application of unified tax credit, Jack would owe a gift tax of $153,000
Current taxable gift(after tax exclusion) = $1,000,000
Prior taxable gifts = $0
Cumulative taxable gifts = $1,000,000
tax on cumulative gifts = $345,800
Current tax on prior taxable gifts = 0
Tax on current taxable gifts = $345,800
Unified credit in 2008 = = $192,800
Unified credit used previously = $0
Unused unified credit = (192,800)
Gift tax due in 2008 = $153,000
2009: Jack calculated his gift tax as follows:
Total gifts = $4,500,000
Annual exclusion(13,000 per donee) = $52,000
Charitable deduction(1000k-13K) = 987,000 =$1,039,000
Current taxable gifts = $3,461,000
Prior taxble gits = $1,000,0000
Cumulative taxable gifts = $4,461,000
Tax on cumulative gifts = $1,730,200
current tax on prior taxable gifts =($345,800)
Tax on current taxable gifts =$1,384,400
unified credit in 2009 = $345,800
Unified credit previously used = ($192,800)
Unused credit = $153,000
Gift tax due in 2009 = $1,231,400
2010: After paying gift taxes of 153,000 and 1,231,400, jack estimates that his taxable estate(after deductions would be 5.4 million in 2010.
Adjusted taxable gifts = $ 4,461,000
+ Taxable estate = 5,400,000
Cum.tranfers = $9,861,000
Tax on cumulative transfers = 4,269,813
less git taxes paid = 1,384,400
Tax on taxable estate = 2,885,413
unified credit in 2010 = -1,455,800
Estimated estate tax due = $ 1,429,613
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